1x Close vs 2x Close Loans: Which is Right for Your Custom Home

Understanding Loan Options for Your Custom Home

When embarking on the journey to build your custom home, understanding your loan options is crucial. You’ll need to decide whether a 1x Close loan or a 2x Close loan is the right choice for your unique project and financial goals. Collaborating closely with an experienced lender is essential to navigating these options successfully

What Are 1x Close and 2x Close Loans?

1x Close Loan

A 1x Close loan, also known as a construction-to-permanent loan, allows you to combine the construction financing and permanent mortgage into a single loan. With this option, you go through the closing process only once, simplifying the financing experience and locking in your interest rate early on.

2x Close Loan

A 2x Close loan, on the other hand, involves two separate closings—one for the construction loan and another for the permanent mortgage. This option provides more flexibility, particularly if you expect changes in your financial situation or lower interest rates during the construction phase.

Benefits and Drawbacks

Simplified Process of 1x Close

The primary advantage of a 1x Close loan is the simplicity it offers. By going through the closing process just once, you save time, reduce paperwork, and avoid the potential for increased interest rates between the construction and permanent phases. However, this option may be less flexible if you need to make changes during construction.

Flexibility of 2x Close

A 2x Close loan offers greater flexibility, allowing you to reassess your financial situation and shop interest rates before committing to the permanent mortgage. This can be beneficial if market conditions are favorable or if your financial circumstances change during construction. The trade-off is a more complex process with two separate closings and the potential for higher overall costs due to the additional closing.

Cost Comparisons and Process Complexity

When comparing costs, it’s important to consider not only the closing costs themselves but also the potential impact of interest rate changes and any fees associated with each loan type. While a 1x Close loan can save money by locking in a single interest rate and reducing closing costs, a 2x Close loan might offer savings by allowing you to shop your permanent financing, especially if interest rates decrease during construction.

Making the Right Choice for Your Custom Home

Choosing between a 1x Close and a 2x Close loan involves careful consideration of your financial goals, evaluating the current and future market environment, and your comfort level with the cost of construction. Consulting with a trusted lender is essential to making an informed decision that aligns with your vision for your custom home.

Empowering Your Owner-Builder Journey with Built Green Custom Homes

At Built Green Custom Homes, we are committed to empowering you throughout your owner-builder journey. We understand the intricacies of custom home financing and work closely with you to ensure that every aspect of your project is handled with care and expertise.

Whether you’re deciding between a 1x Close or 2x Close loan, or navigating other aspects of your build, our comprehensive support system is here to guide you. We have relationships with experts that can help you confidently choose the financing option that best suits your needs, setting the foundation for a successful and rewarding home-building experience.

Contact us today to learn more about how we can support you in building the home of your dreams.

Frequently Asked Questions

What is the main difference between 1x Close and 2x Close loans?

The main difference lies in the number of closings required. A 1x Close loan involves a single closing and rate lock for both construction and permanent financing, while a 2x Close loan requires separate closings for the construction loan and the permanent mortgage.

Are 1x Close and 2x Close loan options available for “Owner Builder” loans?

At the time this article was published, BGCH has relationships with lenders that offer 1x Close and 2x Close loans to Owner Builders using BGCH consulting services. Arrange for an initial free consultation with a BGCH Building Consultant for a current list of lenders.

Which loan type offers more flexibility during the construction process?

A 2x Close loan offers more flexibility, allowing you to reassess your financial situation and interest rates before finalizing the permanent mortgage. This can be beneficial if market conditions change or if you need to adjust your loan.

Are there additional costs associated with a 2x Close loan?

Yes, a 2x Close loan may involve higher overall costs due to the need for two separate closings, which can include additional fees and potentially different interest rates for each phase.

Can I lock in my interest rate with a 1x Close loan?

Yes, with a 1x Close loan, you typically lock in your interest rate at the time of the initial closing, which can protect you from interest rate increases during construction.

How do I choose the right lender for my construction loan?

Choosing the right lender involves evaluating their experience with construction loans, their understanding of the custom home building process, and their ability to offer personalized advice based on your specific needs. It’s important to work with a lender that has experience working with your custom home builder.